Copyright Notice

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the author, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, write to the author, at the address below.

Sakmongkol ak 47

ariff.sabri@gmail.com

Wednesday, 11 June 2008

WHAT ARE THE FACTORS CONTRIBUTING TO ECONOMIC GROWTH? LEARNING FROM CHINA.

China practised central planning for 25 years. This took place from 1953 to 1978. Today China has one of the most impressive economies in the world. Without beating round the bush, this achievement resulted from China adopting the free market economic system.

It began in 1978, when Deng Hsio Peng took over as the leader of China. He then took steps to introduce capitalism to China. The introduction of the free market system saved china from economic downfall which resulted from the development that took place under central planning. The effects of central planning for china during that period were well documented. The economy suffered badly. People were very poor. Famines occurred. Immense hardships occurred during the great leap forward. The great leap forward, was a slogan used by the communist leaders in china at that time to industrialise china. Under this movement, the leader of china at that time wanted to catch up with the industrialised counties in the west. The rural population was forced to produce industrial output. Furnaces at people’s houses were made to produce steel. This caused farm output, especially food to drop drastically. The result was widespread famines. Many people died.

Mao Tse Tung blamed the failure of the Great Leap Forward on people’s attitude, old customs and entrenched thinking. He blamed the failure of the great leap forward because the Chinese people practised counter revolutionary ideas. Chinese thinking failed to support the great leap because, it was dominated by old style thinking and bad culture. To demolish these devils as he called them, Mao Tse Tung, introduced the Cultural Revolution. The aim was to change people’s attitude and mindset. This caused great upheavals. The population was encouraged to rebel against anything. The message from china’s rulers provided the irresponsible elements in Chinese society with absolute discretionary reasons to dismantle anything and everything they thought were counter revolutionary. College students turned against their professors. Children against parents. Many people were forced to wear dunce caps and were paraded humiliatingly in the streets. All forms of authority and hierarchy were savagely attacked. Rebels rule was the battle cry.

It was obvious that the rulers of china at that time did not know how to approach economic development for china. Intuitively they knew that mindset change was necessary to carry out economic transformation. They also knew that the rate of growth was influenced by people’s attitude. Any economic transformation requires some sort of ever questioning attitude or to rebel against established rules. Joseph Schumpeter coined the term creative disruption. It refers to the necessity to destroy existing and older structures to make for the new. They failed to realise that these things can contribute to rapid economic transformation only if free market institutions were established and laws instituted. Hence fro 1978 onwards, the previous condemnation of capitalism was replaced by the new battle cry. It was- to be rich is glorious. Deng Hsio Peng said, he doesn’t care whether the cat is black or white, as long as it catches mice. He asked the people to seek truths from facts. Market institutions and practices were introduced.

During the next two decades from 1978 to 1998, the Chinese economy grew at a very rapid rate. The rate was around 9.6%. From 1998 to 2002, the growth rate was around over 6%, still a very good record. Given this rate of growth, china can equal the economy of America in the year 2020. what are the factors responsible for this phenomenal growth?.